Credit Scores in Australia

If you’ve gone through a credit card application or tried to get a personal loan, you’ll be familiar with the term ‘credit score’. In today's financial landscape, credit scores play an important role in shaping our financial prospects. In a nutshell, they are a numerical representation of an individual's creditworthiness and financial responsibility. 

The emergence of credit scores

Credit scoring systems have been in use for many years to evaluate the creditworthiness of individuals. Over time, these systems have gained prominence in various countries around the world, including Australia. Initially, basic credit reports were generated to assist lenders in their decision-making processes, and over the years, the scope and use of credit reporting have expanded considerably.

How does a credit score work?

In Australia, credit scores are numerical values that typically range from 0 to 1,200. A higher score indicates a better credit history and better creditworthiness. These scores are calculated based on the information from your credit report, which includes details about your credit accounts, payment history, debts and more. The algorithms used to calculate these scores are something of a mystery – the credit reporting bodies keep the exact details under wraps.

What factors determine your credit score?

To understand what impacts your credit score, let's break down the key factors:

Payment history: Timely payments on your credit accounts usually contribute positively to your score.

Credit utilisation: The ratio of your credit card balances to your credit limits is crucial. A lower utilisation rate typically is better for your score.

Length of credit history: A longer credit history can have a positive impact on your score.

Types of credit: Having a mix of different types of credit, such as credit cards and loans, can be beneficial.

Recent credit inquiries: Numerous recent credit applications may negatively impact your score.

Public records and defaults: Bankruptcies, court judgments, debts and defaults will adversely affect your score.

What are credit scores used for?

Credit scores in Australia are primarily used by lenders to assess the creditworthiness of individuals applying for credit. This includes credit cards, personal loans, mortgages and other forms of credit. A higher credit score typically makes it easier to secure credit and sometimes more favourable terms, such as lower interest rates and higher credit limits. On the other hand, lower scores can lead to credit rejections or higher interest rates.

That said, credit scores aren’t just used by lenders. Landlords may also check an applicant's credit score to evaluate their financial stability and responsibility. While a good credit score can make it easier for you to rent a property or secure a job, a poor score may hinder these prospects.

What’s the average credit score?

According to the latest data, the average credit score in Australia stands at 846*. This is a reasonably high score which is a positive indicator of the country's overall credit health. It shows that on average, Australians are responsible with their credit obligations, making timely payments and managing their credit wisely.

In Australia, credit reports typically give scores out of 1,000 or 1,200. A higher credit score can provide you with more financial opportunities and favourable terms when seeking credit.

What is a good credit score?

The definition of a ‘good credit score’ can vary depending on the lender and the type of credit being applied for. Generally, a credit score of 661 where the credit report scores it out of 1,200 is considered good. If your credit report gives scores out of 1,000, then a score above 540 is considered good, and allows you to access credit on more favourable terms. A score below 500 typically makes you look less creditworthy and may limit your credit options.

It's essential to check your credit score regularly and take steps to improve it if necessary. Paying bills on time, reducing credit card balances, and avoiding excessive credit inquiries are strategies that can help boost your score.

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